Thursday, August 19, 2010

The Next CBA: Part I – The Colonel

In 1977, American businessman Bert Lance said “If it ain’t broke, don’t fix it.” That statement is right on the money when it comes to the next NHL Collective Bargaining Agreement (CBA) – there are many components of the current CBA that can work just as well in the future as they do now if left as is.

One thing that apparently will not be left untouched is the way in which players are compensated, the Ilya Kovalchuk 17-year contract serving as a case in point. The NHL seems to be set on closing the loophole in the current CBA that allows what they consider circumvention of the salary cap.

I agree with that sentiment. Sew up that loophole tightly, I say. But do it with the least amount of change possible.

A look at the current CBA shows the layman more than an inch thick sheaf of legalese that contorts and confuses the non-legal mind. I offer instead what I hope is a more clear-language construction of how to change compensation that requires the least measure of compromise on the part of all parties. For Part I of this two-part blog, I begin with what could be a new section in the future CBA explaining how contracts under the new agreement can be put together. Once the verbiage of change is set in Part I, I begin Part II by further explaining its impact on Management/The League and Players. And I finish by overlaying the impact of change on top of a team’s current salary breakdown to show how a team would have to alter their contracts to meet the new CBA’s recommended changes.

A New Contract Construction

The point of contention revolves around the circumvention of the CBA’s intent when trying to lower the Average Annual Value (AAV) of a contract. It has become fashionable to lengthen a term with low dollars in the final years and, lately, beyond what many consider reasonable playing years in order to lessen the Cap Hit. Here is how I recommend attacking this issue:

1. Maintain a Salary Cap in order to retain the competitive nature of teams that is a driving factor in the resurgence of NHL popularity.

a. The Cap would be set in 2012-13 at $60M U.S.

b. From 24 hours after the final Stanley Cup game of a post-season is concluded until 48 hours before the first game of the next Regular Season is played, teams may carry a payroll up to 10% above the Cap Ceiling.

c. The Cap Ceiling can only grow by $250K U.S. each year, but will be reviewed every five years for a potential Five-Year Adjustment (FYA). This provides a base Cap growth of 1.67% over the five year period.

i. FYAs are based on the average annual growth in overall hockey receipts for tickets, merchandise and media monies from all NHL organizations.

ii. At the FYA mark, the total Cap Hit will be adjusted upward or downward based on the difference between the base standard of 1.67% and the annual percentage increase of hockey receipts in the FYA. In no case can it be raised more than 10% from the final year in the FYA period, less than the initial standard of 1.67%, and it is always rounded off to the highest $1M. (EXAMPLE: The FYAs from 2012-13 through 2016-17 are 5%, 3%, 2.6%, 4.4% and 5% above each previous years’ receipts respectively. The total is therefore 20%, or an annual average of 5% over that time. The FYA is then: 5% - 1.67% = 3.33%. So a Cap beginning in 2012-13 at $60M and ending at $61M in 2016-17, would be increased by 3.33% in 2017-18 to $62M U.S. for 2017-18 and then continuing with an annual raise of $250K to the Cap each season until the 2022-23 FYA.)

d. Players’ salaries as stated under the terms of a valid contract will not adjust if the Cap Ceiling shrinks or expands following an FYA until they negotiate their next contract.

e. A Cap Floor will be maintained that is equal to the current standard of $16M below the Ceiling.

2. Player Contracts recognize the skill of the player, support a healthy Restricted and Unrestricted Free Agent (RFA and UFA) climate, and give all parties a measure of salary predictability to aid in planning payroll budgets. This CBA provides for six types of contracts:

a. The Franchise Player Contract I (FPC I).

i. No later than 12:00 noon Eastern Time on the day before the regular season opens, each team may designate to NHL offices one FPC I player for their team (unless previously designated and contracted).

ii. The FPC I can be signed after the expiration of any Entry Level contract and for any term up to and including the season in which he turns 32 years old per the mutual consent of the team and player.

iii. While under contract, the FPC I is an RFA. A No Trade Clause (NTC) notwithstanding, his trade or transfer to another team due to an unmatched Offer Sheet requires compensation from any gaining team:

(1) Through age 30 at the time of trade/transfer, the losing team receives the next two Entry Draft first round selections the gaining team owns. If the gaining team has two first round selections in one draft, they may choose to award both draft choices that season. In every case, any draft position owed is filled by the highest, available pick in the appropriate round.

(2) From age 31 to 32, the losing team receives the next first round selection in the next Entry Draft.

(3) Any team can produce an Offer Sheet for an FCP at any time. If the owning team does not match the Offer Sheet, the team providing it secures the player as the 'gaining team.' The Gaining Team pays two penalties in successfully procuring a player via an Offer Sheet:

(a) Provide the losing team the next three Entry Draft first round selections the team owns if the player is up to 30 years old , or the next two Entry Draft first round selections the team owns if the player is 31 - 32 years old at the time the Offer Sheet is tendered.

(b) In the next full season, the gaining team must pay the player the appropriate FCP Ceiling salary for that particular year.

iv. An FPC I player under a currently valid Standard players Contract (SPC) can retain all present commitments with the following exceptions:

(1) His maximum salary in any given year cannot surpass the current FPC I Ceiling set at 18% of the Salary Cap Ceiling at the time the contract is awarded.

(2) His minimum salary cannot fall below the current Entry Level Contract (ELC) Ceiling when signed plus one season at the FPC I Ceiling during the course of the contract.

(3) If his current SPC salary meets the FPC I standard, he must be designated by the club as such. If two players meet the requirements for an FPC I level, the player not designated by the team as the FPC I will retain his current contract with the appropriate AAV Cap hit for the first season of the new CBA (the 2012-13). After that season, he can either renegotiate a contract with his current team for an acceptable award by 15 July or become a UFA.

v. No player can have an FPC-designated contract following the season in which they reach age 32.

b. An FPC II is similar to an FPC I in all respects with the following, two exceptions:

i. Salary:

(1) His maximum salary in any given year cannot surpass the current FPC II Ceiling (set at 12% of the Salary Cap Ceiling) at the time the contract is awarded.

(2) His minimum salary cannot fall below the current ELC Ceiling for all but one season plus any one season at the FPC II Ceiling over the course of the contract.

ii. RFA Compensation:

(1) Through age 30 at the time of trade/transfer, the losing team receives one first round selection in the next, scheduled Entry Draft and one second round selection in the following, consecutive Entry Draft.

(2) From age 31 to 32, the losing team receives one second round selection in the next Entry Draft.

c. An FPC III is similar to an FPC I and II in all respects with the following, two exceptions:

i. Salary:

(1) His maximum salary in any given year cannot surpass the current FPC III Ceiling (set at 10% of the Salary Cap Ceiling) at the time the contract is awarded.

(2) His minimum salary cannot fall below the current ELC Ceiling for all but one season plus any one season at the FPC III Ceiling over the course of the contract.

ii. RFA Compensation:

(1) Through age 30 at the time of trade/transfer, the losing team receives one first round selection in the next, scheduled Entry Draft.

(2) From age 31 to age 32, the losing team receives one second round selection in the next Entry Draft.

d. A Non-FPC Contract (NFC) is for any player not designated to an FPC, a League Minimum Contract (LMC) or an Entry Level Contract (ELC). An NFC has the following stipulations:

i. If in any season the player is under age 32, an NFC cannot be awarded for greater than three years or less than two years, after which time he becomes a UFA.

ii. Up to age 32, a player can be awarded a one year to three year NFC, after which he becomes a UFA.

iii. From age 33 through retirement, a player can only be awarded a one year NFC, after which he becomes a UFA.

iv. Any NFC cannot be greater than $250,000 below the FPC III maximum salary. It also cannot be less than $250,000 below the ELC maximum salary on the year in which the contract was signed, or for a lesser amount in each year following Year 1.

v. If signed to an NFC, the player is an RFA for the entire length of his contract with compensation based on the best value a losing team can secure, but in no case less than a fourth round selection in the next Entry Draft.

e. A League Minimum Contract (LMC) is the least compensation a player can receive.

i. At no time does it drop below the starting point of $700K U.S. in 2012-13 (unless an approved two-way contract while playing in the AHL).

ii. LMC value is increased each year over the length of the contract by no less than $25K U.S.

iii. A player signed to a LMC cannot be traded without the consent of the player until he has played out in the final year of the contract.

f. An Entry Level Contract (ELC) is awarded to players signing with an NHL club for the first time. Restrictions for ELC’s are:

i. No ELC may increase from the base contract maximum by more than $25,000 per year each year beginning with the 2013-14 season. It also cannot be for a lesser amount in any subsequent year than the amount awarded in Year 1 of the contract.

ii. Can be for no more than three contract years if the player plays in a season from age 18 through 21.

iii. Can be for no more than two contract years if the player plays in a season from age 22 through 23.

iv. Can be for no more than one contract year if the player plays in a season from age 24 and beyond.

v. Following the expiration of a player's Entry Level Contract:

(1) He is an RFA through midnight Eastern Time on 15 August with compensation to a losing team equal to the gaining team’s highest pick in the same round he was chosen in his Entry Draft.

(2) He is a UFA if not signed by his parent team by midnight Eastern Time on 15 August.

(3) If in the transition year his salary was greater than the ELC Maximum, his current salary will be reduced to the current ELC maximum for one year and then his ELC will expire per the same restrictions in 2.f.v.(1) and (2) above.

3. Bonuses paid are at the discretion of the team:

a. From the 2012-13 season onward, however, they cannot under any circumstance be greater than 34% of the player's maximum salary for any year under contract.

b. They count against the Cap at whatever rate they were awarded, but not against a player’s AAV.

c. Bonuses are charged to a Cap Hit for the season after they were paid out.

4. All current contract buy outs remain in effect and as a Cap Hit for the team.

5. The NHL declares a contract valid to make it official and has up to 90 days for a further contract review period at the discretion of the NHL Commissioner.

So What Does This CBA Do Exactly?

To dissect this CBA in greater detail, below we will look at defining monetization of this CBA, what these recommendations do from the perspectives of Management/The League and Players, and give examples of how this reorganization would work if it was going into effect today.

Monetizing This CBA

The monetary restrictions of this CBA are best explained with the chart attached here:

All of the salary numbers flow from the Cap Ceiling. Numbers in red indicate they are merely projections because the FYA done at the end of the season prior may make them higher or lower. And remember: after an FYA adjustment up or down, each successive year the Cap Ceiling will grow by $250K until the next FYA occurs. (EXAMPLE: The Cap grows from a projected $61.25M in 2017/18 based on the 2016/17 end-of-season FYA to an actual $62M. In 2018/19, the Cap Ceiling is $62.25M, and so on.)

Tomorrow, I provide The Next CBA:Part II which begins with discussion of this recommended CBA’s impact on Management/The League and Players. And I close by overlaying the impact of this change on top of a team’s current salary breakdown to show how they would have to alter their contracts to meet the new CBA’s recommended changes…

2 comments:

Davegeek
said...

So this reads like a "Franchise Player" can have offer sheets made to him at any time even if he's under contract. If fact is states quite explicitly "While under contract, the FPC I is an RFA." Is this just poor wording or in fact can offers be made to a "Franchise Player" whenever regardless of whether they have a contract in place.